Federal Appeals Court: U.S. Has Jurisdiction in Chinese Drywall Suits

U.S. courts have jurisdiction over claims that a Chinese drywall company’s defective product wrecked homes, and a company that failed to show up in court must pay $2.7 million for damage to seven Virginia couples, a federal appeals court in New Orleans has ruled.

The 5th U.S. Circuit Court of Appeals upheld a district judge’s ruling that Taishan Gypsum Co. Ltd must pay the couples, who were chosen as representative of about 300 Virginia families.

The case and appeal were heard in New Orleans, where all federal cases involving Chinese drywall have been consolidated.

Attorneys for Taishan, one of two major manufacturers of sulfur-emitting drywall, could not immediately be reached for comment.

“This is a great ruling for the people we represent: homeowners in Louisiana, Florida and Virginia,” Arnold Levin, an attorney representing the plaintiffs, said. “It means that we now have judgments for several property owners and can now pursue that company … with regard to the homeowners similarly situated in Louisiana and Florida.”

The other manufacturer, Knauf Plasterboard Tianjin Co., and some of the companies it supplied agreed a year ago to settlements that attorneys said would add up to more than $1 billion.

The defective drywall was installed in an estimated 12,000 to 20,000 homes and businesses, mostly in the South, between the devastating hurricanes of late 2005 and the housing crash in 2008.

Taishan lost its chance for defense by failing to deal with plaintiffs’ attorneys or the court until it was ordered to pay, the 5th Circuit ruled Jan. 28.

The appeals court also rejected an argument that Taishan Gypsum didn’t understand implications of the lawsuit, which was translated into Chinese. “If TG did not fully understand the significance … it should have sought legal advice,” Judge Jennifer Walker Elrod wrote for the three-judge panel.

Taishan Gypsum sold 100,000 sheets of drywall to Venture Supply Inc. of Virginia in November 2005 and another 100,000 the following month, for a total of $724,800, according to the court. It said Venture shipped and sold Taishan’s drywall to customers in New York, Georgia and Florida, and possibly in Alabama.

The company argued that its contracts with Venture called for arbitrating any disputes in China, so “it was not reasonably foreseeable that it would be hauled into court in Virginia,” Elrod wrote.

The ruling upheld U.S. District Judge Eldon Fallon’s decision that, under Virginia law, Taishan could be sued in Virginia because the company made a considerable amount of money there.

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